ISSN: 2349-5677 Volume 1, Issue 4, September 2014 Agriculture Credit Reform And Financial Inclusion In India Dr. Dushyant Kumar Associate.Prof.in Economics A.S P.G College Lakhaoti,Buland Shahr (U.P) INDIA Abstract Financial Inclusion is a flagship programme started by the RBI to bring people under the ambit of formal financial inclusion. It is now an established fact that without access to formal finance at an affordable cost, inclusive growth is not possible. In order to provide credit to the agriculture sector, which has the potential for employment generation in rural area, the RBI has initiated several programme including revising priority sector lending guidelines. Under this scheme RBI has adopted a policy of providing credit through multiple channels and simplifying procedure for small and marginal farmers. Since 2004, there has been a spurt in agricultural credit due to Govt. of India initiatives such as Doubling of Agriculture Credit in 2004-06, Debt Waiver Scheme and Strengthening of Co- operative. Thus, agricultural credit scenario has been good in past years but the average agriculture GDP growth declined to around 2 percent. Although agricultural credit flow data is impressive but the small and marginal farmers are unable to get credit easily. Therefore more innovative models are needed to reach small and marginal farmers in rural areas for the success of financial inclusion programme. Key words- Financial Inclusion, Agricultural Credit, Poverty, Productivity. 70 ISSN: 2349-5677 Volume 1, Issue 4, September 2014 Need of the Study: *Agricultural credit becomes a strong force to enhance the production level, productivity and income of the farmers, which play important role to alleviate rural poverty. *The need of agriculture credit arises because capital is one of the vital inputs for the development of agriculture. * As we know that Indian economy is based on agriculture, so financial inclusion in agriculture may be a better way to empower the Indian farmer. Research Methodology: This a descriptive research paper based on secondary data. Data have been found out from R.B.I, NABARD, Commercial Bank, Cooperative Banks and RRBs on different view point. Introduction: Rapid growth of Agriculture will not only ensure continued food security but also aid in growth in industry and the GDP. To sustain the growth in agriculture, it is imperative that required capital must be invested because capital is one of the vital inputs contributing to the success of all agricultural development programme. Therefore, financing for agriculture is an important task to fulfill the capital demand in Indian agriculture and credit plays the catalyst role in the process to accelerate the agriculture including industries, business and service sector of the economy. Simultaneously agricultural credit becomes a strong force to enhance productivity, production and profitability of farming, which play an important role to alleviate rural poverty. Agriculture provided employment opportunities and supplementing of small, marginal farmers and land less labours especially in rain fed and drought prone areas. Dynamic and vibrant agriculture alone will effectively address the problems of rural poverty (RBI 2004). Therefore agriculture is not just a question of economics and trade but of dignity and survival (Swaminathan 2004). So agriculture is the root of prosperity in rural India. Credit is often a key 71 ISSN: 2349-5677 Volume 1, Issue 4, September 2014 element in modernization of agriculture and accelerates the adoption of new technology. It is also an integral part of the process of commercialization of the rural economy. Financial Inclusion is a flagship programme started by the RBI to bring people under the ambit of formal financial inclusion. It is now an established fact that without access to formal finance at an affordable cost, inclusive growth is not possible. In order to provide credit to the agriculture sector, which has the potential for employment generation in rural area, the RBI has initiated several programme including revising priority sector lending guidelines. Under this scheme RBI has adopted a policy of providing credit through multiple channels and simplifying procedure for small and marginal farmers. Sources of Agriculture Credit: There are mainly two source of credit to agriculture (a) Non-Institutional/informal sources. (b) Institutional/ Formal sources Non-Institutional:- They include money lends traders, commission agents, relatives and land lords. There are rich farmers or land lords, who combine farming with money lending, freely supply credit to farmers for productive and non-productive purpose. Traders and commission agents supply funds to farmers for productive purpose especially for crop production. These types of sources of finance are important in the case of cash crops. Farmer often borrows from their own relatives in cash or kind for various purposes. Institutional: - Earlier agriculture credit requirement was depends upon private money lender and they charged high interest rate and land or other assets were kept as collateral. This arise the need for institutional credit arrangement for agriculture. The institutional arrangement for agriculture credit comprises cooperatives, commercial banks, RRBs, NABARD and micro Finance Institution in India. 72 ISSN: 2349-5677 Volume 1, Issue 4, September 2014 Cooperative credit Societies – Commonly known as the primary agricultural credit society, is the gross root arm of the short term credit structure, dealing directly with farmer borrowers and also undertaking farm input marketing and distribution function. Commercial Banks – They are providing direct and indirect finance to the farmers and distribution firms or agencies and cooperative engaged in supply of farm implements and machinery on a hire purchase basis. They finance the operations of state and central government for procurement and storage of food grains. Co-operative Agriculture and Rural Development Banks – They grant loans on the basis of agricultural properties. They provide credit for a variety of purpose such as redemption of old debts, land improvement, to purchase expensive agricultural machinery and construction of wells. Regional Rural Banks (RRBs) – RRBs were setup under the recommendation of the working group on rural banks headed by M.Narsimham in 1975 to provide banking facilities in rural and backward areas. The main objective of RRBs is to provide credit and other banking facilities particularly small and marginal farmers, agricultural labourers and rural artisan. National Bank for Agricultural and Rural Development (NABARD) – Recommendation of the committee to review arrangements for institutional credit for agricultural and rural development, The NABARD was set up in 1982 as the apex of rural institutional credit network. Agricultural Credit: A Review As we see today, the rural credit system has evolved over the last six decade. During this course, the system witnessed many reforms as recommended and suggested by various committees and expert group appointed by government of India and R.B.I. from time to time. 73 ISSN: 2349-5677 Volume 1, Issue 4, September 2014 The agriculture credit system received its first and significant policy direction from All India Rural Credit Survey (AIRCS) committee, 1954. The committee highlighted that share of institutional and non-institutional credit was 7.3% and 92.7% respectively and proposed new initiatives and financial support to agriculture. The committee recognized the existence of cooperative structure and recommended the establishment of large sized multipurpose credit societies and extending banking services in rural areas. The emergence of green revolution in the mid 1960 demonstrated the need for effective credit support to farmers and also explored the inability of credit cooperatives to meet the challenge. Consequently, the Government of India intervened to encourage commercial banks to play a major role in providing agriculture credit by nationalization of commercial banks in 1969 and 1980.The other major development in agriculture credit from the supply side were establishment of RRBs in 1975 and Establishment of NABARD in 1982.All these institutional development of the rural credit structure and initiative brought out significant changes in agriculture credit delivery. Financial Inclusion and Reforms in Agriculture Credit: At the time of the 1991 reform, the rural credit delivery system was again found to be in poor shape. The agriculture credit review committee (ACRC) examined the existing rural credit system and pointed out the wide gap between income generated and cost incurred by rural credit institution. The Narshimham committee 1991 on financial sector reform recommended a redefinition of a priority sector, gradual phasing out of directed credit to 10 percent from 40 percent and deregulation of interest rate. However, weakness in the performance of credit supply, the Govt. and R.B.I setting up of various committees/ working groups/ task force to look into the supply of agricultural credit. These committees/ working groups/ task force made recommendation and suggestions for enhancement of cost effective institutional agriculture credit supply. 74 ISSN: 2349-5677 Volume 1, Issue 4, September 2014 Jagdish Kapoor task force (1999) on co-operative credit system, recommended setting up of a co-operative rehabilitation and development fund at NABARD. The Vyas expert committee on rural credit (2001) suggested restoration of the health of